Increased Maximum LTV/TLTV/HTLTV Ratios for Initial Interest ARMs Means More Origination PotentialFebruary 21, 2006
With the February 17 Single-Family Seller/Servicer Guide (Guide) Bulletin, we further enhanced our Initial InterestSM Mortgages with higher maximum LTV/TLTV/HTLTV ratios for Initial Interest adjustable-rate mortgages (ARMs) – helping you offer more opportunities to meet the specific needs of borrowers interested in interest-only mortgages. With this enhancement you'll have more opportunities to capitalize on market trends and increase your origination volume from qualified borrowers.
Higher ratio limits for all Initial Interest ARMs
The higher maximum LTV/TLTV/HTLTV ratios are for all Initial Interest ARMs for purchase transactions, no cash-out refinances and cash-out refinances. You can leverage Initial Interest 3/1, 5/1, 7/1 and 10/1 ARMs, including Initial Interest ARMs with 10-year interest-only payment periods, with the higher maximum ratios to meet the needs of your qualified borrowers exploring interest-only mortgage options. We increased the maximum LTV/TLTV/HTLTV ratios by five percent for all Initial Interest ARMs as follows:
For purchase transaction and "no cash-out" refinance Initial Interest ARMs:
- The maximum LTV ratio without secondary financing is increased from 90% to 95%.
- The maximum LTV ratio with secondary financing is increased from 85% to 90%.
- The maximum TLTV ratio is increased from 90% to 95%.
- The maximum HTLTV ratio is increased from 95% to 100%.
For cash-out refinance Initial Interest ARMs:
- The maximum LTV ratio without secondary financing is increased from 70% to 75%.
- The maximum LTV ratio with secondary financing is increased from 65% to 70%.
- The maximum TLTV ratio is increased from 70% to 75%.
- The maximum HTLTV ratio is increased from 75% to 80%.
Assessing Initial Interest ARMs in Loan Prospector
When you submit Initial Interest ARMs with the higher maximum LTV/TLTV/HTLTV ratios for assessment in Loan Prospector®, you will receive a purchase restriction message regarding maximum LTV/TLTV/HTLTV ratio in the "Purchase Restriction" section on the Full Feedback Certificate. Effective as of February 17, you may disregard this particular purchase restriction and sell Initial Interest ARMs to Freddie Mac as long as the mortgage meets the requirements in Guide Chapter J33. We will update Loan Prospector to reflect the increased maximum LTV/TLTV/HTLTV ratios at a later time.
You can continue to leverage the advantages of Freddie Mac's selling system to sell Initial Interest ARMs with the higher maximum LTV/TLTV/HTLTV ratios for cash or securities – all without any new delivery requirements.
Third-party originators, please check with your wholesale lender to determine if they are currently offering Initial Interest Mortgages.
A solution for selected borrowers
Please remember, Freddie Mac Initial Interest Mortgages are an excellent option for certain borrowers who fully understand that their payments will adjust, and that their monthly payment will increase significantly after the interest-only payment period.